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The US Federal Reserve has recently given a vibrant indication that the tightening cycle is over. Quantitative tightening will also end earlier than previously expected, helping to ensure global liquidity remains flush.
The USD is ending the quarter on a firm note – the DXY heading for a fourth, quarterly rise – but is narrowly mixed on the day itself and remains well within the broader range that has prevailed in the past few months.
The US 10YY has risen modestly to 2.40% while the 3M/10Y curve is back to flat. The bullion prices have gained traction upon the recent developments of the US treasuries. There is a full suite of US data releases this morning – Personal Income/Spending, PCE data, the Chicago PMI, New Home Sales (and final U. Michigan Sentiment data).
Please be noted that the positively skewed IVs of 3m XAUUSD contracts are still indicating the upside risks. One could see a bullish risk reversal setup. To substantiate the above bullish sentiment, risk reversal (RRs) numbers indicate an overall bullish environment.
The above risk reversal numbers have been known as a gauge of gold’s underlying market for bullish opportunities. Well, we know that options are predominantly meant for hedging a probable risk event in the future.
Option Strategy: Capitalizing on the prevailing dips of gold price in the short-run and OTC indications, bullish neutral risk reversals of gold, we advocate longs in gold via ITM call options.
Buy 3m XAUUSD (1%) ITM -0.69 delta calls on hedging grounds. If expiry is not near, delta movement wouldn’t be 1 point increase with 1 pip in the underlying movement, which means if the spot moves 1 pip, depending on the strike price of the option, the option would also move less than 1. Thereby, in the money call option with a very strong delta will move in tandem with the underlying.
Alternatively, on hedging grounds, we advocated long positions in CME gold contracts. We now like to uphold the same strategy by rolling over the contracts for April’19 delivery as we could foresee more upside risks. Courtesy: Sentrix & Saxo
Currency Strength Index: FxWirePro's hourly EUR is at 5 (absolutely neutral), hourly USD spot index is inching towards 59 levels (bullish), while articulating at 14:23 GMT.
For more details on the index, please refer below weblink: http://www.fxwirepro.com/currencyindex
